Heating season overview: biomass prices stabilise, creating favourable conditions for long-term contracts

The 2024-2025 heating season was marked by stability in the biomass market. Prices converged across the Baltic states, and the gap between short and long-term transaction prices has nearly disappeared. The average wood chips price in Lithuania decreased by 8% to 21.80 EUR/MWh, Latvia saw 18% decrease to 22.01 EUR/MWh, while in Estonia wood chips price rose by 1% to 21.34 EUR/MWh.

“Following the suspension of biomass imports from Belarus in 2022, many anticipated significant price spikes or supply shortages. However, the opposite occurred – the market demonstrated stability and maturity in adapting to geopolitical and economic changes. Prices today reflect local market dynamics and strong competition while maintaining the balance between supply and demand,” says Vaidotas Jonutis, Trading Manager at Baltpool.

This winter season was notable for its meteorological conditions, with milder weather and fewer extreme cold days resulting in lower biomass demand across the region. Latvia had a particularly warm winter, with Riga recording the highest average temperature among all Baltic capitals.

Although wood chips turnover in Latvia and Estonia decreased, the total volume of transactions on Baltpool’s exchange in the Baltic States increased by 2% compared to the previous season, reaching 5.3 TWh (EUR 115.8 million). In Lithuania, the increase was 5% to 4.3 TWh, while in Latvia the turnover decreased by 17% to 0.48 TWh and in Estonia it remained at the same level of 0.5 TWh.

Favourable conditions for long-term contracts

Historical price differences between Lithuania, Latvia and Estonia have nearly disappeared. A similar trend is seen in transaction structures, with long-term and short-term contract prices aligning closely. This situation is an indication of market stability with low volatility risk, though it should be interpreted with caution.

“This may give market participants more confidence to opt for long-term contracts, which ensure continuity of supply and reduce planning risk. While buyers avoid risk premiums in long-term contracts, this also eliminates potential gains that could arise from price fluctuations,” explains V. Jonutis.

For suppliers, lower volatility enables more effective planning of sales volumes, logistics, and investments. This is particularly relevant for smaller players, where uncertainty directly affects operations.

Nevertheless, when it comes to managing supply and price risks, a well-thought-out strategy is key. Long-term and short-term contracts have their advantages, and combining them allows to adapt to market cycles and business growth objectives.

However, another option, often overlooked when diversifying the contracts, is indexed contracts, that allows for long-term supply security while maintaining a direct link to SPOT prices. “Indexed contracts are a reliable solution for those who want to maintain price flexibility while planning ahead. They help to effectively manage the risk of price fluctuations while ensuring supply chain stability,” adds V. Jonutis.

Anticipating Continued Market Stability

For the upcoming heating season, Baltpool forecasts continued price stability in raw materials – current market conditions suggest no major shifts but it may reduce market participants’ appetite for risk.

“Today’s dynamics of raw wood prices are not a cause for concern and supply chains are functioning without significant disruptions. Although, corrections in biomass stock levels are expected due to another potentially warm winter,” points V. Jonutis.

Pre-season stockpiling has resulted in losses for two consecutive years. As a result, biomass storage volumes may be more conservative in the upcoming season.

“This poses the risk that under certain conditions, such as longer periods of extreme cold, there may be fewer resources available on the market to meet unexpected increase in demand. In this case, a temporary shortage of supply could develop in the short-term market. Market participants can protect themselves against this by diversifying their trades,” the expert notes.